Concept / Definition of Insurance
Insurance may be defined as a device in which a sum of money as premium is paid by the insured in consideration of the insurer’s bearing the risk of paying a large sum upon a given contingency (risk). Thus, insurance involves avoiding, mitigating and transferring of risk, which creates greater predictability for individuals and organizations. It enables risk to be handled intelligently to achieve stability and growth.
A Contract of Insurance may be defined as a contract between two parties whereby a person undertakes in considerations of a fixed sum to pay to the other a fixed amount of money on the happening of a certain event or to pay the amount of actual loss when it takes place through a risk insured. The instrument containing the contract of insurance is called a Policy. The person whose risk is insured is called Insured or Insurer, Assurer, or Underwriter. The consideration in return for which the insurer agrees to make good the loss is known as Premium. The thing or property, which forms the basis of insurance, is called The Subject Matter of Insurance. The interest of the assured in the subject matter is called the Insurable Interest.
Insurance as a Risk Management
The most common tool used in risk management is insurance. Today’s Lifestyle and elaborate financial world is making us more prone to risks that were not even assumed to exist in the olden days. The non-life(general) segment of the insurance sector offers a plethora of options to choose from to insure a person or his needs from head-to-toe. However one must have an eye to recognize the risks he faces that can be insured element of financial planning. However, more so as a risk-management tool rather than an investment.
It is in one’s own interest to secure and insure his health, wealth and property. Tracing back in time for a few years, insurance policy was considered to be useful to safeguard the revenues in the future. However, in this day and age, the mounting risk of financial uncertainties makes it necessary to have an insurance cover has helped the Indian insurance industry bloom in the recent years. The approval by the Union cabinet for the hike in FDI in insurance from 26% to 49% ensures a bright a future for the Indian insurance industry.
The main reason to insure ones interest is protection against future financial losses. It offers the insured a peace-of-mind to help him achieve a higher productivity. It helps to attain a sense of security that he will remain safe from financial hardship (expect deductibles and co-pay, to be explained further). These hardships could be the result of theft, loss of income or medical emergencies. When insured with covers like Medi-Claim and personal Accident, it helps to remain self-dependent. Especially for senior and retired citizens, whose medical expenses gain a lot of attention, It is a good brace. Furthermore, it motivates welfare of employees and helps as a strong support for business continuation. It also acts as a saviour from re-adjustment needs at the time of occurrence of an event that result in severe losses.